Bills
Refunds and credits aren’t just admin, they’re part of keeping your books honest and your supplier relationships clear. Things don’t always go exactly as planned. Maybe a supplier overcharged you, sent the wrong goods, or you simply returned something. When that happens, they’ll often issue a credit note or give you a refund. If you don’t record those properly, your accounts can quickly start to tell the wrong story, showing you’ve spent more than you really have or leaving old bills sitting unpaid. This module is about getting that story straight….
WHY DO YOU USE THIS?
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Without handling credits and refunds, your bills will look higher than they truly are, and you might overstate what you owe
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Supplier refunds put money back in your pocket, but only if they’re recorded properly. Miss one, and you’re working with false numbers.
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Applying a credit note to a future bill ensures you don’t accidentally pay the same amount twice.
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Credits and refunds are part of your business history. Recording them correctly means no confusion later for you, your accountant, or the IRD.
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Keeping your accounts tidy shows your suppliers you know where you stand and that builds better long-term relationships.
WHEN WILL YOU USE IT?
When you get a refund or credit from a supplier, first collect the paperwork, like an email, credit note, or bank alert. This shows why you’re getting money back and gives you a reference to use. Next, you need to check if it relates to an existing bill in Xero. Sometimes a credit note will reduce a bill you’ve already approved, and other times it stands alone. This is also the point where you decide how it will be handled, will the supplier offset it against what you already owe them, or will they refund the money directly back into your bank account?
Once that’s clear, you’ll record the credit note or refund in Xero. That means entering the supplier details, date, amount, and GST (if any). The final step is reconciliation, matching that entry against the correct bill or payment in your bank feed. This is your basic process this keeps your payables tidy and ensures your reports show the real movement of money, not just what was originally billed
IT ALL BEGINS WITH AN IDEA
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IT ALL BEGINS WITH AN IDEA ✦
CREATE & APPLY
A CREDIT NOTE
Go to Business → Bills to Pay.
Click New Bill → Credit Note.
Enter the supplier, date, and credit amount (include GST treatment).
Save the credit note.
To apply it:
Open the original bill.
Click Allocate Credit.
Select the credit note and apply.
Check the remaining balance—should now show as reduced or zeroed.
RECONCILE CREDIT
Go to Bank Reconciliation screen when the refund appears in your bank feed.
Click Find & Match.
Locate the original bill or the supplier credit note.
If none exists, create a credit note directly from here.
Match the refund to the credit or bill.
Confirm reconciliation.